Loan Money to Family – Avoid Regrets (2026 Guide)

At some point, you may find yourself in a position where a family member approaches you for financial help. It's a delicate situation that blends personal relationships with financial responsibility. If you're considering lending money to a family member, there are several things to consider to make sure the arrangement benefits both parties and preserves familial harmony.

Understanding Lending Money to Family Members

Lending money to a family member can be a generous act that helps them through difficult times or assists them in achieving a goal, such as buying a home or starting a business. However, it's important to approach this situation with the same seriousness as you would any financial transaction. This means setting clear terms, understanding the legal implications, and considering the tax effects. In Australia, informal family loans are common, but it's essential to formalise the agreement to prevent misunderstandings or disputes.

Interest Rates, Requirements, and Options

When lending money to a family member, you have several options for structuring the loan. You could charge interest, which makes the loan more like a formal lending arrangement, or opt for an interest-free loan. The choice depends on your circumstances and the nature of your relationship with the borrower.

In the current 2026 market, personal loan interest rates in Australia range from 6.49% to 12%. If you decide to charge interest, it might be wise to set a rate comparable to these figures or slightly lower, considering the personal nature of the loan. It's also crucial to set a repayment schedule and specify what happens in case of default.

Eligibility criteria for such loans are not as rigid as those from financial institutions. However, assessing the borrower's ability to repay is crucial. Look at their income, existing debts, and financial behaviour to ensure they can meet their obligations.

Steps to Loan Money to a Family Member

Here are the steps to take when you decide to loan money to a family member:

1. Discuss the Need: Have an open conversation about why the loan is needed and how it will be used.
2. Set Terms: Agree on the amount, interest rate (if applicable), repayment schedule, and any other conditions.
3. Draft a Loan Agreement: Write a formal agreement outlining the loan terms. This document should be signed by both parties.
4. Consider Legal Advice: Consult a lawyer to ensure the agreement is legally binding.
5. Document Everything: Keep records of the loan agreement, payments received, and any correspondence regarding the loan.
6. Regular Check-ins: Schedule regular meetings to discuss the loan status and any potential issues.

Tips and Considerations

Here are some expert tips to consider when loaning money to a family member:

• Be Prepared for Non-Payment: Understand that there's a risk of not being repaid. Only loan what you can afford to lose.
• Consider Emotional Impacts: Money can strain relationships. Be clear about your expectations from the start.
• Utilise Professional Help: At Esteb and Co, our panel of 83+ lenders can provide guidance on structuring family loans.
• Tax Implications: Interest earned on the loan may be taxable. Consult a tax professional to understand your obligations.
• Keep Communication Open: Regularly communicate with the borrower to avoid misunderstandings.

Frequently Asked Questions

1. Do I have to charge interest on a family loan? No, but charging a nominal interest can formalise the agreement.
2. What should be included in a loan agreement? Include the loan amount, repayment terms, interest rate, and consequences of default.
3. Can a family loan affect my taxes? Yes, any interest earned may be taxable income.
4. Is it better to gift money instead of loaning it? Gifting might be simpler if you don't expect repayment, but consider your financial situation.
5. What if the borrower doesn't repay the loan? Discuss the issue openly and consider mediation if needed.
6. Can I use a loan broker for family loans? While family loans are typically private, a broker like Esteb and Co can offer advice on structuring the loan.
7. How can I protect myself legally? Formalise the loan with a written agreement and seek legal advice.